Hey BP. I hope you had a great holiday season and are buckled down for a big 2015!
So let’s talk about geography today. It’s a big question that comes up early in the investing game. Where should you invest? There are many philosophies and strategies out there, all of which make sense to those that stand behind them. At the end of the day, it goes back to your goals.
For now, I only do deals within 30 minute drive of my office in Trenton, NJ. That may change in the future, of course. In reading this you may identify with my reasons for doing this and want to do the same. You may also realize that your goals in real estate investing allow you to do business all across the country! Either way, let’s get into it.
The Passive Real Estate Investor
I am a full time investor and had intended to be one when I got started. I didn’t like my day job and wanted to be an entrepreneur. I also loved the numbers and the business of real estate so before I bought my first property, I knew I wanted to be a full timer.
There are many people out there who have no intention of quitting their day jobs anytime soon. These are called Passive Investors. Passive Investing is not to be confused with Passive Income, which is the beneficial way that most rental property income is taxed. Passive Investing is hands off investing. It’s done as a way to take advantage of the benefits of real estate investing without going through the day to day activity that comes along with owning real estate. For them, passive investing is appropriate because they don’t have to put much time in at all to get a return on their money. The money they make is not their primary source of income.
In other words, it’s leveraging Other People’s Time (OPT) to reach your real estate goals. Examples of Passive Investments are turnkey deals, private equity deals, and private loans. The Passive Investor is allowed to make the returns they are looking for based on the performance of the other side of the equation, the Active Investor.
The Active Real Estate Investor
The Active Investor is the house flipper, the active landlord, the General Partner. They are the ones who are doing the day to day activity to drive the investment forward. Passive Investors can invest anywhere they want, as long as they trust the Active Investor and are happy with the proposed returns on their money.
The Active Investor, on the other hand, is the producer of those returns and is compensated for that. They are dealing with the tenants directly, handling the contractors, and driving to get vacancies filled. The Active Investor needs to be close to the deal with their team to make this happen.
So my choice to be an Active Investor is the core reason I keep my investments close to my office. To take it further, here are things I can leverage by investing in my own backyard. These make me an even stronger Active Investor for the long term:
Building an Efficient Team
I have been able to build a team of support to grow the portfolio over the years. At first this was a group of independent contractors that I used regularly on my properties. In time we have grown it to a team of full time employees. Any one of our properties is within a 30 minute drive for my maintenance staff and my leasing team. They can be very effective and cover our entire portfolio easily with our office as a hub.
If we invested farther away from home, I’d have to find a new local contractor in the area or have one of my team members travel out to the property every time there is an issue.
I am local and so are all my banks and insurance providers. I can build a very close relationship with them, which has been valuable as we’ve grown.
Finding Deals Easily
Because I invest locally, I have turned over deals in odd places. I have purchased property right around the corner from my home. I own a small apartment building on the same block as my office. A small business owner down the street from my office is one of my best investors. These things came up because I’m in these areas every day, with my eyes open!
Managing the Culture of My Business
In being hands on Active Investor, I have control of the type of business I want to cultivate. We came up with a vision for our company – to Transform Lives Through Real Estate. We do that through offering quality housing to people and exceeding their expectations for customer service, through job training for our employees, and through helping our investors build their long term wealth. Being local to all the investments allows me to walk the properties regularly and meet with my employees and tenants in an effort to make sure we are moving towards that vision.
When I Will Break My Rule
So with all that said, I will break my rule one day and invest outside of a 30 minute drive from my office. Currently we manage our whole portfolio from our offices in Trenton and don’t require management on the site of our properties, simply because they aren’t large enough. I will do a deal that has enough units to justify an on-site management office, and in my areas that’s usually the case above 50 units.
With that in place, I can continue to hold the vision for our company without stretching my local team too far. We aren’t too far from reaching this, but until then I am keeping it close to home!
So let me know what you think – any other Active Investors out there that keep it local like me? Anyone actively invest properties from afar?
Let’s get a conversation going!